Pension reform in teaching service

THE STATE has for many years promoted the concept of pension reform for members of the public service, including TTUTA’s priority – members of the teaching service.

This is a matter which has serious implications for all public officers and one which requires careful consideration and the involvement of all stakeholders, particularly those organisations which represent public service employees.

The current pension arrangements for public officers involve the payment of a lump sum (gratuity) and a monthly pension. The payment of these benefits is initiated by the employer on the submission of an application by the teacher.

Members of the teaching service are required to submit their application at least a year in advance to avoid an inordinate delay in the payment of benefits. This happens because the Ministry of Education is overloaded as a result of the convoluted processes involved in dealing with retirement matters.

For this reason only, it would benefit the system to change the arrangements governing teachers’ retirement.

The Government had proposed (and we hope is still considering) a revolutionary approach to pension arrangements involving the introduction of a contributory (“defined contribution” rather than “defined benefit”) plan which would allow teachers control of their pension benefits based on practices which have been utilised in developed countries.

The basic concept would be that the quantum paid into the Consolidated Fund on behalf of a teacher would instead form part of the teacher’s salary and appear on the teacher’s salary slip, but would not be available to the teacher. Instead, that money would be a compulsory contribution and would be automatically paid into a pension fund.

The features of the fund would be:

1. The fund would be personal to the teacher and the teacher would receive regular statements on the value of the fund and the benefits accrued to date.

2. The fund would be portable, that is, the teacher could take the fund with her to a new employer if she is changing jobs.

3. The fund would be transferable. The teacher could change carriers if she so desires to facilitate a change in employers or if she perceives that she would receive improved benefits with another carrier.

4. The teacher could determine her level of contribution above the employer’s contribution, thus having control over the benefits payable to her on retirement.

5. Ethical carriers from among established financial institutions would be identified and would operate under stringent rules determined by the Government. The teacher would thus have the option to choose a preferred carrier.

6. The fund could be used as security for projects agreed on between the employer and TTUTA, eg home construction.

The retirement payments would be made by the carrier, not any department of the Ministry of Education or the Ministry of Finance, with all the red tape and delays involved. In any event, teachers would have up-to-date information on their entitlements and would know beforehand exactly how to plan for their retirement.

The horror stories of delays of up to two years and sometimes more awaiting payment of benefits would be behind us. No longer would teachers be at the mercy of the Ministry of Education after retirement. Changes to benefits, for example, when new salaries are negotiated, would be effected immediately.

Other pension or annuity plans should not conflict with the proposed plan, nor should the national insurance pension benefit. This plan would be independent of any other plan and a teacher may subscribe to as many plans as the teacher determines.

Taxation arrangements would be the same as those which apply under the present arrangements, that is, the gratuity or lump-sum payment would not be subject to tax and the existing allowances for retirees would apply. Teachers leaving regular employment may have taxes deducted from their payments under certain conditions as at present.

Past service presents a problem of funding, as the benefits accrued by each existing teacher at the date of the commencement of the plan would have to be quantified, and a contribution equivalent to that benefit would have to be deposited with each teacher’s choice of provider, to ensure that she would not be denied benefits which she would have earned through previous service.

The proposed plan would serve to remedy several of the disadvantages of the present system and reduce the dependency of teachers on the services of the Ministry of Education. Care would have to be taken to ensure that the carriers maintain the highest level of integrity and accountability in their operations.